Chart of Accounts

Modified on Wed, 15 Jul 2015 09:31 by tpaeglis — Categorized as: General Ledger

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Nomenclature, classification and codification
Example
   Simple Chart of Accounts
      Group headings
   Balance Sheet Accounts
      Asset Accounts
      Liability Accounts
      Stockholders' Equity Accounts
   Profit & Loss accounts
      Revenue Accounts
      Cost of Goods Sold Accounts
      Expense Accounts
Trial Balance
Types of accounts

A chart of accounts (COA) is a created list of the accounts used by a business entity to define each class of items for which money or the equivalent is spent or received. It is used to organize the finances of the entity and to segregate expenditures, revenue, assets and liabilities in order to give interested parties a better understanding of the financial health of the entity.

The list can be numerical, alphabetic, or alpha-numeric. The structure and headings of accounts should assist in consistent posting of transactions. Each nominal ledger account is unique to allow its ledger to be located. The list is typically arranged in the order of the customary appearance of accounts in the financial statements, balance sheet accounts followed by profit and loss accounts.

Nomenclature, classification and codification ¶

Each account in the chart of accounts is typically assigned a name and a unique number by which it can be identified. (Software for some small businesses may not require account numbers.) Account numbers are often five or more digits in length with each digit representing a division of the company, the department, the type of account, etc.

As you will see, the first digit might signify if the account is an asset, liability, etc. For example, if the first digit is a "1" it is an asset. If the first digit is a "5" it is an operating expense.

A gap between account numbers allows for adding accounts in the future. The following is a partial listing of a sample chart of accounts.

How to Number the Accounts

The first range of account numbers are current asset accounts and they are generally organized by the most current/liquid accounts first to the least current/liquid accounts. Current assets generally include cash, bank accounts, accounts receivables, inventory, supplies, and prepaid expenses. These accounts have normal debit balances.

The second range of account numbers will generally be the property, plant, and equipment. These accounts include land, buildings, equipment, vehicles, and accumulated depreciation for those assets. These accounts have normal debit balances.

The third range of account numbers are current liabilities accounts. These accounts include accounts payable, interest payable, unearned revenues, and notes payable. These accounts have normal credit balances.

The fourth range of account numbers are long-term liabilities. These accounts include mortgage loan payable, bonds payable, and discount on bonds payable. These accounts have normal credit balances.

The fifth range of account numbers are equity accounts. Equity accounts can include common stock at parr, paid-in additional to par, owner’s equity, retained earnings, and treasury stock. These accounts have normal credit balances.

The sixth range of account numbers are operating revenues accounts. These accounts have normal credit balances. These accounts have normal credit balances.

The seventh range of account numbers are cost of goods sold accounts or the direct cost of sales accounts. These accounts can include purchase of raw material, warehouse for production rent and machine repairs. These accounts have normal debit balances.

The eighth range of account number are the indirect cost of sales accounts which can include marketing costs accounts, vehicle depreciation, and administrative costs. These accounts have normal debit balances.

The ninth range of account numbers are the miscellaneous income and expenses. These accounts can include loss or gain on sale of an asset, repair costs for natural disasters, and lawsuit gains or losses. These accounts can have either debit or credit balances which is based on whether they are a gain or loss to the business.

Example¶

Simple Chart of Accounts¶

Group headings¶

Revenue
Cost of Goods Sold
SG&A
Establishment Expenses
Interest Expenses

Within each of these headings will be the individual nominal ledger accounts that make up the chart of accounts. E.g. establishment expenses may consist of rent, rates, repairs, and so on.

Balance Sheet Accounts¶

Asset Accounts¶

Cash - (Cash on Hand)
Bank Accounts
Accounts Receivable (Debtors)
Prepaid Expenses
Inventory (Stock on Hand)
Land
Buildings
Vehicles & Equipment
Investments & Stocks
Accumulated Depreciation and
Other Assets

Liability Accounts¶

Accounts Payable (Creditors)
Credit Cards
Tax Payable
Employment Expenses Payable
Bank Loans

Stockholders' Equity Accounts¶

Common Stock (Share Capital),
Retained Earnings (Revenue Reserves),
Dividends
Drawings

Profit & Loss accounts¶

Revenue Accounts¶

Sales Revenue
Sales Returns & Allowances
Sales Discounts
Interest Income

Cost of Goods Sold Accounts¶

Purchases and sales Expense
All sales Expense
Purchase Returns & Allowances

Expense Accounts¶

Advertising Expense
Bank Fees
Client Expense
Depreciation Expense
Education Expense
Payroll Expense
Expense
Rental Expense
Income Tax Expense
Information Technology Expense
Insurance Expense
Office Expense
Utilities Expense
Maintenance - Vehicle
Travelling and Conveyance Expense
Legal Expense
Salaries and Wages Expenses
col-end

Trial Balance¶

The trial balance is a list of the active general ledger accounts with debit and credit balances. A balanced trial balance does not guarantee that there are no errors in the nominal ledger entries.

Types of accounts¶

Asset accounts: represent the different types of economic resources owned or controlled by business, common examples of Asset accounts are cash, cash in bank, building, inventory, prepaid rent, goodwill, accounts receivable Reference: Marsden, S J, 2010. Australian Master Bookkeepers Guide. 3rd ed. Sydney Australia: CCH.
Liability (financial accounting) accounts: represent the different types of economic obligations by a business, such as accounts payable, bank loan, bonds payable, accrued interest.
Ownership Equity accounts: represent the residual equity of a business (after deducting from Assets all the liabilities) including Retained Earnings and Appropriations.
Revenue accounts or income: represent the company's gross earnings and common examples include Sales, Service revenue and Interest Income.
Expense accounts: represent the company's expenditures to enable itself to operate. Common examples are electricity and water, rentals, depreciation, doubtful accounts, interest, insurance.
Contra-accounts: Some balance sheet items have corresponding contra accounts, with negative balances, that offset them. Examples are accumulated depreciation against equipment, and allowance for bad debts against long-term notes receivable.